The techniques of managerial control can be divided into two- traditional techniques and modern techniques.
Traditional techniques: The techniques which are being used by the manager since a very long time are called traditional techniques. They have not absolute and are still being used by the companies. The different kinds of traditional techniques are explained below:
a. Personal observation: Personal information includes the manager being able to oversee the work being done. This allows the manager to gather the right first and information. It also creates pressure on the workers to perform well because they are being continuously observed. However, it is a time-consuming process and it is not possible for one single manager to oversee all the activities in your organisation.
b. Break-even analysis: It is an analysis of the relation between cost, volume, and profit. Break-even point is the point where the quantity of sales leads to neither profit nor loss. It is the point where the total cost is equal to the total revenue. It helps the manager to estimate the cost and the profit earned by the organisation and accordingly take measures to increase the profit earning.
c. Statistical report: Statistical report includes statistical analysis in the form of average, ratio and percentage. This information can be easily represented in the form of a graph, charts, and table. It makes the comparison extremely easy for the manager.
d. Budgetary control: Budgetary control is a method of controlling that involves the preparation of plants in the form of a budget. Budget is the financial statement that defines the targets to be achieved and the policies to be followed during a specific duration of time. The actual performance is compared with a budgetary standard. If there is any deviation, measures are taken for the same. Budget is made for different divisions of the organizations at such as sales budget, purchase budget and production budget. It is a source of motivation for the employees to measure the performance against the budgetary standard.
Modern techniques: Modern techniques are the techniques which are relatively new in the management literature. It is based on a new idea of thinking and providing better managerial control. The Different techniques used under this category explained below:
a. Return on investment: It refers to the benefits earned in comparison to the investment of the organisation. It provides a useful yardstick to measure whether the invested capital is being able to generate a reasonable amount of Return. This technique can be used to compare the performance of different departments or while comparing the present performance with past performance. It is calculated by the following formula:
Rate of return on investment= net income / sales X sales/ total investment
b. Ratio analysis: Ratio analysis is a technique of calculating different ratios to analyze the financial statement. The different types of ratios are:
1. Liquidity ratio to determine the short-term solvency of the business.
2. Solvency ratio to determine the long term solvency of the business.
3. Profitability ratio to analyze the profitability position of a business
4. Turnover ratio to determine the efficiency of the activities on the basis of utilisation of resources.
c. Responsibility accounting: It involves the setting up of different divisions in an organisation at the responsibility Centre. Head of each Centre is responsible for achieving the targets and fulfilling the duties regarding his own Centre. For example, the cost Centre is responsible for the cost incurred by the organisation, the revenue centuries responsible for the revenues earned by the organisation and the investment center is responsible for the investment made in the form of assets.
d. Management audit: The management audit is the extensive and constructive appraisal of the overall performance of the management of the organisation. It helps to recognize the current and the probable deficiency in the performance. So it can be said that it helps to take the necessary corrective measures. It increases the level of adaptability to the at environmental changes. This is done by ensuring that the managerial policies are up to date.
e. Program evaluation and review technique PERT and critical path method CPM: These techniques are based on network analysis. The entire project is divided into different activities. The time limit and the cost to be incurred in estimated for each activity as well as the entire project. It helps in the successful execution of the project. These techniques are usually used in construction projects.
f. Management information system MIS: It is a computer-based information system that provides the information for effective managerial decision. It is the process which analyses the huge amount of data and gives Useful information to the manager. It facilitates the collection and dissemination of information at various levels.
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Explain the technNCERT - Business Studies Part-I